2/16/2010 @ 12:00AM

America's European Dream

The evolving Greek fiscal tragedy represents more than an isolated case of a particularly poorly run government. It reflects a deeper and potentially irreversible malaise that threatens the entire European continent.

The issues at the heart of the Greek crisis–huge public debt, slow population growth, expansive welfare system and weakening economic fundamentals–extend to a wider range of European countries–most notably in weaker fringe nations like Portugal, Italy, Ireland, Greece and Spain (the so-called PIIGS). These problems also pervade many E.U. countries still outside the Eurozone in both the Baltics and the Balkans.

But things are also dicey in some of the core European powers, notably Great Britain, which has soaring debt, high unemployment and very slow growth. Even solvent economies like France, the Netherlands and the continental superpower , Germany, have fallen short of expectations and are expected to experience meager growth for the rest of the year.

Europe’s poor performance undermines the widespread view held by left-leaning American pundits, policy wonks and academics about Europe’s supposedly superior model. This Euro-philia has a long history, going back at least to the Tories during the Revolution. In better times America usually moves beyond European norms instead of retreating to its cultural mother.

When the U.S. hits a rough spot, however, there’s a ready chorus urging us to emulate the old continent. During the psychological meltdown that accompanied the Vietnam War, some pundits looked longingly at the relatively peaceful and increasingly affluent Europe as a role model. “There is much to be said for being a Denmark or Sweden, even a Great Britain, France or Italy,” Andrew Hacker said in 1971.

In the 1980s, as the country struggled to recover its historic competitiveness, numerous pundits suggested adopting European models, notably French and German, to restore our economic standing–a notion widely echoed by Euro-nationalists such as former French President Francois Mitterand’s eminence grise, Jacques Attali.

Two decades later, with the U.S. reeling from the Great Recession, there’s been a rebirth of euro-mania. Author Parag Khanna, for his part, envisions a “shrunken” America that is lucky to eke out a meager existence between a “triumphant China” and a “retooled Europe.” And Jeremy Rifkin, in his The European Dream, promotes the continent as a morally preferable model–more egalitarian, open and environmentally sensitive–a sentiment recently echoed in my old New America colleague Steven Hill’s Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age.

Yet over the past four decades Europe’s core economies–the E.U. 15–have lagged behind the U.S. in terms of both gross domestic product and job growth. Overall, the E.U. 15′s share of the global GDP has declined to 26% from 35% while the U.S. has held on to its share, now roughly equal to that of its European counterparts. The big winners, of course, have been in East and South Asia.

Some of this has to do with the difficulties of maintaining an elaborate welfare state. In a productive, efficient and still largely homogeneous country such as the Netherlands or Sweden, an expansive system of social insurance and a vast public sector remains an affordable luxury.

In contrast, countries like Portugal, Greece and to some extent Spain have tried to create a Scandinavian-style welfare state based on Banana Republic economies. In addition, over-reliance on tourism and real estate speculation has proved no more viable there than in places like Las Vegas or Phoenix.

Europe’s problems may prove even more profound in the long term. For example, Europe has some of the lowest birthrates in the world. Among 228 countries ranked in terms of birthrate, Europe accounts for 20 of the bottom 28. These include relatively prosperous Germany (No. 226) and Sweden as well as a range of the shaky fringe including Greece, Bosnia, Hungary, Latvia, Italy, Portugal and Spain.

The shrinking population problem is complicated by the fact that the one growing source of new Europeans consists of Muslim immigrants who generally have not integrated well into continental society. Many European countries–Denmark, the Netherlands and Switzerland, for example–are taking steps to shut their doors, something that may promote harmony and security but could exacerbate the long-term demographic decline.

With their state-driven economies pledged largely to support a growing population of aging boomers, it’s hard to see what new sources of growth will propel the continent in the coming decades. Overall, according to the European Central Bank, the Eurozone’s growth potential is now roughly half that of the United States.

Meager economic growth may also be affecting on one of Europe’s greatest achievements: its relative egalitarianism. The trend toward greater inequality, earlier evident in the U.S., has now spread to Europe, including such famously “egalitarian” countries as Finland, Norway and Germany, which was the only E.U. country to see wages fall between 2000 and 2008.

In Berlin, Germany’s largest city, unemployment has remained far higher than the national average, with rates at around 15%. One quarter of the workforce earns less than 900 euros a month. In Berlin, 36% of children are poor, many of them the children of immigrants. “Red Berlin,” with its egalitarian ethos, notes one left-wing activist, has emerged as “the capital of poverty and the working poor in Germany.” [i]

As in the U.S., the burden of recession has fallen most heavily on younger people. An OECD analysis found that older European workers enjoyed the best gains during the past 30 years, while children and young people fared worse. For E.U. workers under 25 the unemployment rate is well over 20%, slightly higher than that of the U.S.but a remarkable statistic given the far less rapid expansion of the European workforce.

The situation is particularly dire in Europe’s exposed southern tier. Young people who rioted in Athens in 2008 suffer unemployment rates in excess of 25%. By the end of 2009 unemployment for those under 25 stood at 44% in Spain and 31% in Ireland. Even in Sweden the youth unemployment rate has reached 27%.

If the pattern of the last decade holds, many of Europe’s most talented young people will end up in the U.S., particularly once the recession comes to an end. By 2004 some 400,000 European Union science and technology graduates were residing in the U.S. Barely one in seven, according to a recent European Commission poll, intends to return. “The U.S. is a sponge that’s happy to soak up talent from across the globe,” observes one Irish scientist.

Of course, there is still much we can learn from Europe. Besides a sometimes enviable lifestyle, Europeans offer some intriguing health care models and have led the way in efficient fuel economy standards. But overall, profound differences in demographics and cultural traditions suggest that America cannot easily follow European approach to social organization and planning.

Indeed as the U.S. and Europe confront the challenge of the rising Asian powers, their approaches likely will have to diverge. To maintain its economy and pay its debts, America will have to focus on creating jobs and opportunities for a growing population. Europeans will struggle with declining workforces, radically skewed demographics and an increasingly burdensome welfare state.

In the 21st century we will witness not so much a clash of civilizations, but a more subtle parting of the ways. Americans need to choose a path that makes sense for us, not one drawn from an aging society whose future seems unlikely to match its past achievements.